Trump Wins 2024 Presidential Election: Impact on Federal Tax Reform

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While President Trump won the 2024 Presidential election, and the Republican party has also won the majority in the Senate, control of the House of Representatives is still too close to call. If Republicans gain control of Congress and the Presidency, they will move quickly regarding federal tax reform. Republicans continue to signal that their top priority, over the debt ceiling, is to extend the 2017 Tax Cuts and Jobs Act (“TCJA”).

It is expected that Senator John Thune (R-SD) and John Cornyn (R-TX) will run for GOP leader in the Senate. Senator Thune was a key architect of the TCJA and both Senators Thune and Cornyn are members of the Senate Finance Committee.

In addition, Senator Mike Crapo (R-ID) is expected to become the next Senate Finance Committee leader. If the House of Representatives majority remains Republican, it would be anticipated that Mike Johnson (R-LA) remains the Speaker of the House, and Jason Smith (R-MO) continues to chair the Ways and Means Committee.

The federal tax reform discussion amongst GOP leadership started months ago. Chairman Smith and Tax Subcommittee Chairman Mike Kelly announced in April 2024 the formation of ten Committee Tax Teams, comprised of Ways and Means Republican members, to study key tax provisions from the TCJA that are set to expire in 2025. In May 2024, Senate Finance Committee Republicans created their own working groups. The Senate working groups are intended to help prepare for the expiration of key tax provisions of the TCJA in 2025, as well as other tax issues likely to be on the table. A Bloomberg Tax report noted that other tax issues could include possible changes to permanent tax code provisions, such as changes to the corporate tax rate.

Republican sources say Senator McConnell, Thune and Crapo are spearheading recent discussions on the first major bill Republicans hope to move in 2025. Senator Cornyn has also been in discussions.

Republicans are expecting a Senate majority with at least 52 seats, but it is not expected that the GOP will control 60 seats in the Senate. Therefore, the ability to pass laws with a 60-vote filibuster threshold without bipartisan support is unexpected. However, the budget reconciliation process has been utilized by both Democrats and Republicans to enact tax laws when a narrow margin exists in Congress. Both the Senate and the House must pass a budget resolution that sets parameters for fiscal year spending. The resolutions will require committees to change spending and/or revenue to meet specific targets. For example, the TCJA instructions were that the modifications could not increase the 10-year budget window by more than $1.5 trillion, while the Inflation Reduction Act could not add more than $3.5 trillion.

If Republicans control the Presidency and Congress, President Trump will likely seek to extend the TCJA via budget reconciliation, while Republicans may also be looking to modify or fix other tax provisions, including the three main international provisions: the Global Intangible Low-Taxed Income (GILTI), the Foreign Derived Intangible Income (FDII), and the Base Erosion Anti-Abuse Tax (BEAT). President Trump has also suggested a further reduction in the corporate federal income tax rate from 21% to 20%, or even 15% for U.S. manufacturers.

Budget reconciliation can be used to change mandatory spending, except for Social Security. In addition, reconciliation is not typically used to change discretionary spending, including non-defense outlays such as certain veteran benefits, education, and transportation.

A House Republican aide noted GOP members of the Senate Finance and House Ways and Means Committees met as recently as last week to discuss a possible reconciliation package. A broader package might not only include modifications to taxes, but some are also speculating major healthcare changes could be included. In addition, one Republican aide indicated that immigration could be included in a budget reconciliation bill as well:

“Dealing with the problem at the border is something the president has said will be one of his primary priorities and objectives if he’s elected,” the aide said. “It would be a mistake to come in and do a reconciliation bill that’s just an extension of [the Tax Cuts and Jobs Act] and not deal with these other major issues, which are what President Trump has been talking in his bid to be elected.”

While there are a variety of options for the Republican party to review if they can work through the budget reconciliation process, key tax policies to monitor include:

Overall, the Committee for a Responsible Federal Budget projects that the Trump Tax and Spending plan will increase the federal deficit between $1.45 and $15.5 trillion through 2035. Whether some Republicans will require a “pay-for” for any additional deficits created due to tax reform remains to be seen. For example, Senator Thom Tillis (R-NC) has stated that any “non-pro-growth” policies should be paid offset with revenue. The most significant revenue raiser included in the Trump tax policy proposal is the imposition of a universal baseline tariff of 10% to 20% on all U.S. imports and a 60% tariff on all U.S. imports from China. The estimated revenue raised from such a proposal would be between $2-$4.3 trillion. However, Congressional leaders seem unclear on how the tariffs could impact economic growth and whether retaliation could occur through a global trade war. Alternatively, a reduction in mandatory spending, except for social security, could also be reviewed through the budget reconciliation process.

Stay tuned for more to come as things develop.